To further investigate the impact that foreign companies have had on domestic brands or companies, opinions were garnered from sixteen top Chinese branding consultants. Most interviewees expressed regret at the disappearance of Chinese national brands after M&As and joint ventures by foreign companies. However, there were also a few interviewees who believe that most Chinese national brands have no brand value in the long-term, and that their value was reflected in the distribution channels and government relations. Therefore, the disappearance of these brands in fact does not matter. As interviewees said:
The disappearance of these brands can only show they lacked a competitive edge or the strength to survive.
Interviewee H.
When the brand owners cannot see any hope for the future, naturally they transfer the brand to others.
Interviewee O.
While three out of sixteen interviewees pointed out that the foreign brands‘ impact on Chinese brands is not, strictly speaking, simply a question of branding, it is also necessary to recognize a significant difference in economic power. All the other interviewees acknowledged that this gap between foreign
and Chinese companies was extremely large. Those powerful foreign companies grew up in relatively mature market economies over decades or even centuries, and their advantages become obvious when in competition with Chinese companies.
China has only recently entered the market economy and has a poor sense of branding whilst lacking brand management skills and experience as identified earlier. Currently, just as Chinese companies face an urgent need for cash, technology and management skills, they may quite readily surrender up their brands as a form of capital to foreign companies:
Foreign brands have been accumulating their strengths over a long period and have abundant capital, cash, technology and powerful brands, whereas Chinese companies are just entering the market and not only lack operating capital but must face competitors much stronger than themselves. This is a game between professionals and amateurs.
Interviewee J
On the one hand, foreign companies use well-established marketing management tools to compete with Chinese companies; on the other hand, they carry out acquisitions and attacks on competitors at the capital operational level. Chinese companies with urgent needs for capital and other resources either sell ownership of their brands, or use brands as assets in order to enter a joint venture, which ultimately means that brands that the Chinese have painstakingly built up become a weapon for foreign companies to use to open up the Chinese domestic market.
As regards the issues of how to avoid being trapped by foreign companies‘ strategic attacks and to improve competitiveness, the experts have shared their opinions. One interviewee advised Chinese companies that before the introduction of foreign capital, Chinese companies need to fully assess the real value and potential value of the brands in order to form a basis for correct decision making and to avoid pitfalls that can lead to great losses.
At the same time, two out of sixteen branding experts pointed out that most companies lack a corporate strategy or long-term development plan, preferring to simply secure cash in hand. When faced with a choice between continuing to develop the company and being bought up, for various reasons they choose the latter.
Most domestic brands owners take profit as the first goal and have no strategic outlook. They pay little regard to business planning for the next 5 years, 10 years or 20 years.
Interviewee M.
However, one interviewee believed a foreign take-over was not necessarily a bad thing. In this way, Chinese companies can become aware of a crisis situation and, at the same time, become aware of their own shortcomings. Such a situation may encourage Chinese companies to mature in their outlook and improve their competitiveness.
Under the laws of a market economy, it is the survival of the fittest, and it is inevitable that the weak will be eliminated. By undergoing this tempering, Chinese brands can become increasingly strong.
Interviewee C.
Additionally, two interviewees believe that the government has a definite responsibility for foreign capital sweeping the board in the Chinese market. Mainly, the government‘s excessive support for foreign companies in order to attract foreign investment has suppressed the development of Chinese companies (mainly non-SOEs) which have lacked the protection of an integrated national policy for manufacturing and the economy. Most non-SOEs were very weak. As discussed in Chapter Two, a non-SOE is often heavily reliant on internally-generated funds and foreign investment (Kalish 2006). Lacking sufficient support from the government, their situation is quite precarious.
Certain government policies are misguided. In particular, the previous support given to foreign companies also served to undermine and limit the development of private companies. In particular, this has contributed to the disappearance of Chinese national brands.
At the same time, companies have their own inherent problems. For domestic companies, diversification has been the primary method for achieving business growth. but with unsatisfactory results.
The moment a Chinese company starts to make money, they want to diversify. A company in the garment trade also moves into real estate or telecommunications. Wherever they see a source of profit, they cast greedy eyes on it. More often than not, it ends in failure and may even lead the core business to decline.
Interviewee K.
In response to above problems, experts further pointed out ways for Chinese companies to improve. There was unanimous agreement among interviewees that Chinese companies should consolidate their basic skills and avoid impetuous moves. They should first improve their competence in regard to product quality, corporate governance and branding. Meanwhile, they should rid themselves of the sales-led mindset and instead work steadily on marketing and branding and seek to define the real purpose of the business.
Chinese companies should steadily and surely develop their brands and marketing, to understand their customers, understand the times and the world we live in. They should create new products and create new businesses. At every stage, they should show concern for their customers and be able to put themselves in their shoes.
In order to move away from an outlook that is solely oriented towards short- term projects, a long-term vision, patience and a willingness to continually learn and explore need to be developed by Chinese companies. Any business should be single-minded in their intention to be one of the best in their field. Chinese companies should view with caution any cheque providing foreign capital that is tossed their way. It is necessary to establish stable and suitable brand management systems and marketing strategies, rather than greedily seek out foreign capital in order to win market share.
Before the introduction of foreign capital, Chinese companies need to fully assess the real potential value of the brands in order to form a basis for correct decision making and avoid pitfalls that can lead to great losses.
Interviewee G.
Learning from foreign brands could strengthen Chinese companies‘ products, R&D and enable them to learn how the brands can be marketed. Equally important is to innovate and update the products to suit the Chinese customers‘ tastes so they are willing to open their wallet or purse.
Chinese companies should learn from advanced foreign companies and establish reasonable mechanisms and systems based on their own situation in order to build a united, efficient and creative team.
Meanwhile there is a need for M&As in different industries in the domestic market. Such companies will become better able to face foreign brands in the domestic market or possible overseas M&As. As identified in Chapter Two, most Chinese manufacturing companies are small with limited resources; therefore, cooperation between domestic companies can enhance the competitiveness of companies, especially when competing with foreign rivals. In the following chapter this point will be discussed further.
Chinese companies should be integrated into a few strong brands through mergers and acquisitions in the industry in order to enhance their competitive capacity.
Interviewee F.
Finally, one interviewee suggested that the government should set up a fund to support national brands and to acquire those brands who want to transfer their ownership and employ a professional team to work on these brands. This would enable these brands to increase the price for transferring ownership, thereby providing a deterrent to foreign companies while enabling the original owner to appreciate the value of their products.
The government needs to provide increased protection for the legal ownership of private property and this should include intellectual property rights such as trademarks. Otherwise, financially successful private enterprises will seek to emigrate overseas and will, naturally, lack any motivation to maintain their brands.
Meanwhile, the government should increase its measures to combat all forms of counterfeiting and copyright infringement to avoid a situation whereby the legitimate market is driven out of business by the black market.
5.5 Conclusion
The growth of the Chinese economy has impressed the world but Chinese brands have not impressed consumers in the international market or in the domestic market. Those brands from different global brand rank lists are mostly SOEs that rely on support from the government or a huge customer base in the domestic market. Moreover, the profits of those leading manufacturing brands have been generated from the domestic market, not the global market. They are still far from being global brands.
In the domestic market, Chinese brands are struggling to compete with foreign rivals. With rich funding, strategic performance and the preferential policies provided by the Chinese government, foreign companies, especially multinationals, have quickly penetrated the Chinese market in many different industries while many Chinese national brands are in decline or disappearing.
It is clear from the above investigation that Chinese companies have no brands that are leaders in both domestic and international markets. Chinese companies need to improve the overall operational capacities of their enterprises and brands, and to mature beyond imitation and competition. At the same time, as the experts pointed out, the government should increase protection for local brands to avoid undesirable acquisitions by foreign companies. The government needs to introduce and strictly enforce measures to block foreign companies from simply buying up Chinese brands at cut-price rates.
However, as one interviewee stated, ‗None of the above is easy‘. He expressed
concern as to how many companies could achieve these requirements or understand what they entailed. Most importantly, they need to recognize their own ignorance and be prepared to seek expert assistance.
Many Chinese companies are struggling to compete with foreign rivals in the domestic market, while many Chinese companies are eager to go global. They consider overseas M&As as a short cut to enter the foreign market to gain brand names. In the next chapter, an investigation is carried out as to whether overseas M&As have been an effective strategy for Chinese companies to develop their brands.